Currency fluctuation – How the best investors take advantage

Whenever there is a significant shift in currency rates, the media goes wild. Usually, the worst case scenarios are highlighted although for some savvy investors, it doesn’t have to be like this.

In fact, there are plenty of investors out there who will take full advantage as soon as a shift in currency is noted. One obvious example comes in the form of George Bardwil; a man who formed Bardwil Industries and has been at the forefront of the company who have existed since the early 1900s. Ultimately, to survive such economic volatility over this time, some shrewd decisions have had to be made. With some of his products being sourced from overseas, it goes without saying that currency can have a big part to play in businesses such as this one.

Following on from the above, we’ll now take a look at some of the best ways in which to make the most of currency moves and potentially even make a healthy profit.

The obvious one – investing overseas

Of course, if a currency is performing poorly at home, going abroad to a stronger climate is the seemingly clear course of action.

It goes without saying that these foreign currencies, if chosen correctly, are going to be appreciated. This has the knock-on effect of your returns appreciating as well.

Some U.S. investors took advantage recently in the Canadian dollar, which has risen to immense levels over the last decade.

The hedging option

For some businesses, currency is a huge part of day-to-day trading. It means that if the local currency does suffer, they can end up in all sorts of problems.

This is where hedging comes into play. While you’re not necessarily going to benefit hugely from the option, the fact that you can hedge your risk through exchange-traded funds and currency options can at least limit your exposure and prevent possible future problems.

Turning to multinationals

One of the great things about the U.S. is the amount of multinational companies that are housed there. It means that a lot of the revenue for these companies actually comes from abroad – and you probably get the idea on where we’re heading next with this one.

In other words, as soon as the dollar starts to weaken, the earnings of such companies start to increase.

The trick of course is getting in before other investors see the potential in a difficult economic climate.

Don’t succumb to the temptation of borrowing from other currencies

During hardship, it can be tempting to borrow in low interest foreign currencies. As a short-term solution, there’s no doubt that this will work.

However, it’s also worth noting that the dollar is something which will eventually revert back to a “normal” state.

If you turn to foreign currencies, there is every chance that these will appreciate and you will be left with a hefty bill at the end. Just ask those who turned to the Yen in the peak of the financial crisis in 2008.